The Mexican Coffee Crisis

THE MEXICAN COFFEE CRISIS 6

TheMexican Coffee Crisis

Thecoffee industry has been affected by various factors over time. Oneof the factors is that the industry has been faced with the problemof low prices that keep on fluctuating. Since the liberalization ofthe coffee industry, it has been difficult to control the prices ofcoffee this emanates from the involvement of oligopolies thatinfluence the prices of coffee (Renard, 2010). Another factor leadingto low prices in the coffee industry is over-production. As thesupply of coffee has increased, it has become exceedingly difficultto attract high prices. Furthermore, low prices in the coffeeindustry have led to the production of low quality coffee sinceproducers of coffee have neglected taking a lot of care, such asapplying new technologies in the production of coffee because of itslow prices. For instance, it has been predicted that due to havinglow incomes from coffee production, 71% of Mexican coffee producersstopped using fertilizers in the production of coffee, 75% of themceased to invest in pest prevention, while 40% reduced maintenance ofcoffee through weeding by the conclusion of 2005 (Renard, 2010).Thus, poor incomes from coffee as a result of reduced prices, hasled to low quality coffee.

Newcountries entering the market have affected the coffee industry sinceit has led to formation of coffee cartels that influence the pricethat coffee attracts. Besides, new countries entering the market haveled to increased production a move that has contributed to the lowcoffee prices. New entrants into the market have also contributed tothe formation of new policies that concentrate on improving thequality of coffee. However, the policies being introduced to enhancequality of coffee are perceived as detrimental to the coffee industrysince they would lead to high prices of coffee, which is likely todecrease the consumption of coffee (Renard, 2010). This is becauseconsumers would always be interested in buying items that areaffordable. Since they are already used to the low prices, increasingthe price because of enhanced quality is likely to reduce theconsumption of coffee.

Inaddition, as a result of new countries entering the market, thecoffee industry has been affected since it has led to theintroduction of the Law for the Integral and Sustainable CoffeeDevelopment. According to this law, there should be the withdrawal ofdamaged coffee from the market and changes in the NOM (MexicanOfficial Norm), which permits the adding up of up to 30% of additivesto coffee being sold in the Mexican market with no need of any typeof label specification. Producers from other countries have for along time fought this norm and have sought the adoption of a normestablished by other producing nations, which only permits a maximumof 10% additives and this has to be indicated on the label (Renard,2010). This law would also lead to low consumption of coffee sincemore and better quality beans would need to be used duringprocessing, which would result to increased coffee price that wouldbe charged to consumers therefore, new countries entering the markethave affected the coffee industry.

Supplyand demand have played a part in the coffee problem in Mexico. Whenthe supply is high, but demand is low, it is likely that the price ofa commodity would be affected. In this case, the price is likely toreduce. This scenario is not different, when it comes to the coffeeindustry in Mexico. Despite Mexico being the sixth-biggest producerof coffee in the globe, domestic consumption has been low in spite ofthere being an increase in consumption over the past few years(Euromonitor International, 2015). For example, in 2007, consumptionper person was 1.2 kg, which was an increase from the 2000consumption consumption in 2000 was 0.7kg per person. Since thesupply is exceedingly high, the demand for coffee has been low. Mostof the consumed coffee is instant coffee, which is manufactured usinglow-quality coffee (Santoyo, et al, 1995). Low demand in the markethas resulted to the use of low-quality coffee, which fetches lowprices.

Newproducts and marketing strategies entering the market have alsoaffected the coffee industry. Because of low incomes that medium andlarge scale producers receive by relying on the market, theseproducers have opted to introduce new products that would diversifytheir productions. For instance, farmers have introducedtimber-yielding trees or fruits in their coffee plantations. This hasled to the lowering of coffee quality, which is a blow to the coffeeindustry. This is because it is due to the deteriorating quality ofcoffee that producers continue to receive low pay. On the other hand,new marketing strategies entering the market have also affected thecoffee industry. Producers have developed new marketing strategiessuch as increasing the value of their coffee through processing. Thishas led to increasing the amount that they get from coffee a movethat has helped in boosting the sector. Coffee houses have increasedas producers try to process their coffee for enhanced value. Otherproducers have decided to use market niches like organic, gourmet,and Fair trade coffees in ensuring that they reap more profits fromcoffee. This marketing strategy has also guarded producers againstmarket fluctuations. Therefore, new marketing strategies entering themarket have helped in boosting the coffee industry since they helpproducers in continuing with production since they usually receive areasonable pay that can sustain their production costs.

Theconsumer behavior is very critical in influencing business decisionsin the coffee industry. The consumption behavior of consumersinfluences the business decisions associated with the coffee industrysince their willingness to pay low prices for the coffee that theyconsume makes it difficult for the industry to improve the quality ofcoffee produced. This is because increasing the quality of the coffeewould imply high prices per kilogram of coffee, which consumers maynot afford. Besides, consumer behavior can be indicated to influencethe decision of Mexican market allowing additives up to 30% sincethey are not ready to pay high prices. In case consumers are willingto pay more for coffee, the coffee industry would not hesitate inensuring that the coffee produced and sold is of high quality.

Itis unethical not to include the additives used in the processing ofcoffee in a label because consumers may end up paying exorbitantprices for coffee that they consume. Thus, it is critical to ensurethat laws that govern the indication of additives used duringprocessing become revealed on the label. The regulatory considerationof issuing permits that allow the importation of inferior qualitycoffee may have the implication of reducing the price of coffee thatproducers receive this move may hinder the growth of the coffeeindustry.

References

EuromonitorInternational. (2015). Coffeein Mexico.

Renard,M. (2010). TheMexican Coffee Crisis, in Latin American Perspectives,volume 37, No. 2, pages 21-33.

Santoyo,H., Salvador D., &amp Benigno R. (1995). Sistemaagroindustrial café en México. Chapingo:Universidad Autónoma Chapingo.